On January 22, Croatia must ratify by referendum the Treaty of Accession to the EU. But the campaign, coming just as the country is about to enter a Europe in crisis, has been marked by second thoughts and a new nationalist rhetoric.

Following the signing of the Treaty of Accession to the EU [December 9, 2011], the best, the most touching and the most original welcome message did not come from Zagreb or from Brussels but from Poland. On YouTube, dozens of Poles, mostly youth, welcomed Croatia, without hypocrisy and without false pathos, in an atmosphere of spontaneous joy.

The Poles thus proved that today's Europe, shaken by the crisis, by doubts and divisions, can and must be the Europe of common values, of joy and of hope. Brussels held out a hand to Croatia but Poland brought cheer to Croatia's soul.

The Poles themselves joined Europe while fuelling many fears, notably that of loss of sovereignty, as well as of the demise of the peasantry. As in Croatia, the Polish Catholic Church pleaded in favour of Europe due to a barely dissimulated fear that its bigger neighbours might start to refashion both the country's past and its future.

Despite the fears, Poland showed that accession to the EU can be successful, even at a time when most of the major countries – the rich and powerful – are in the throes of a serious crisis. Poland remained Poland and became European.

It was not necessary to create a new “Euroslavia” in the Balkans in order for Croatia to obtain its EU entry ticket. The history of the accession negotiations, which were as long as they were painful, was paved with prejudice, misconceptions, fears and ignorance. They struck catastrophic, xenophobic, nationalistic and provincial chords but also plucked at cosmopolitanism and supranational strings.

Europe is not currently a land of plenty

Thus, former President [Franjo] Tudjman, who favoured joining Europe, slammed the door on talks in an excess of pride by refusing to join the Visegrad Group (composed of Poland, Hungary, Slovakia and Slovenia) because he considered that Croatia did not need to ally itself with former Russian satellite states.

Others, on the other hand, such as Prime Minister [Ivo] Sanader, were prepared to swallow anything to speed up accession and paid the price in false promises including that Croatia would join the EU at the same time as Bulgaria or Romania.

Europe no longer tolerates accession on the cheap, but it has not "always hated everything Croat" as some wanted to believe. This Europe has endeavoured to pacify the Balkan powder keg, but it has not hesitated to recognise the achievements of each country as it moves on the path towards meeting the conditions imposed. After Slovenia, it is Croatia that sailed the most quickly into the European port without having to wait for its neighbours.

Europe is not currently a land of plenty. In the context of the crisis, even the major countries such as France or Germany have accepted to deprive themselves of some of their sovereignty. In this Europe, no one is calling for the creation of a new Yugoslavia or even for the resurrection of Communism. In this Europe, Croatian is recognised as an official language and Zagreb has the right to ask for the protection of everything relative to its heritage, its traditions or its character.

More arrogant than the French

Once the accession treaty was signed, many nationalist myths crumbled and regional prejudices became obsolete. The referendum is being prepared bereft of the lies of the past but some new questions are being posed by the young intellectual elite, now liberated from the myths of the Tudjman era. However, the responses they propose are no less dangerous.

In its simplistic generalisations, this elite claims that Europe betrayed its principles long ago, even that it balkanised itself long before the Balkans became European, in the same way that Croatia was balkanised before becoming European.

According to this line of thought, we do not need this Europe, mired in its economic crisis, nor the Europe of values, which is no more than the shadow of itself. In short, we are demanding a perfect Europe for a Croatia which is, itself, far from this ideal.

These new "blameless" Croats are more arrogant than the French, more stubborn than the English and more irresponsible than the Greeks. They will never apologise for spreading false prophecies but they are ready to condemn Croatia as a whole to a sterile future while claiming to be more European than Europe. In days of yore, we boasted of being "the most ancient of Europeans," today we are proud to be "the most demanding".

Outlook

Looking good for the “Yes” vote

According to a recent poll taken before the Jan 22 referendum, 60 percent (of a sample of 1000) say yes to EU membership. Kukuriku, the centre-left coalition in power since November, and the HDZ (Conservative), which was in power during the negotiations and is now the main opposition party, have called for a yes vote. So too has the Catholic Church.

Opponents of EU membership, who could rally 31 percent of Sunday’s vote, are found among the supporters of the small parties of the nationalist right and sympathisers of the anti-capitalist left. The yes vote is largely expected to come from university graduates, earning 500 euros or more and living in the capital, Zagreb, and the province of Istria. The surveys forecast a voter turnout of around 60 percent for the referendum.

NOT SURE IF THIS SHOULD BE A SEPARATE THREAD,BUT THERE COULD ANOTHER `SUB-PRIME' CRISIS ,THIS TIME CONCERNING CARBON FUELS.$10TRILLION POTENTIAL LOSSES,PENSION FUNDS COULD LOSE A LOT.BECAUSE COUNTRIES ARE TRYING TO CUT BACK ON CARBON EMISSIONS,THESE ASSETS COULD TURN OUT TO BE WORTHLESS.

The surprisingly successful auctions owe little to improving economic data around the region. On the contrary, many of the countries that use the euro as their currency appear to be confronting a renewed recession, and pessimism about their growth prospects remains abundant. Just last week, Standard & Poor’s stripped France of its coveted AAA rating for the first time in recent history and downgraded eight others. Instead, most of the credit seems to go to the European Central Bank, which in late December under its new president, Mario Draghi, quietly began providing emergency loans to European banks — hundreds of billions of dollars of almost interest-free capital that the banks have used to come to the rescue of their national governments. The central bank, based in Frankfurt, used typically understated and technical language to describe its actions, but it appears to have done what its leadership said throughout 2011 that it would not do: namely, flood the financial markets with euros in a Hail Mary attempt to make sure that the region’s sovereign debt crisis does not lead to a major financial shock. Though on a smaller scale and in a subtler manner, it has in many ways taken a page from the United States Federal Reserve’s playbook for the 2008 financial crisis, which has been roundly criticized in Europe as a reckless bailout that risks setting off uncontrolled inflation. And, at least for now, the effort has worked. Spain’s 10-year bonds carry interest rates that hover around 5.5 percent, compared with 7 percent and higher in November, and Italy’s five-year bonds are approaching 5 percent, down from nearly 8 percent at their peak. There have been moments before when European leaders declared the crisis contained, only to see it return with renewed fury. But the central bank’s incentives, combined with a push from the private banks’ home governments, seem to have convinced investors that this time may be different, and financial markets in Asia, Europe and the United States have responded with strong gains this year. Fears of a bank collapse — the so-called Lehman Brothers moment, when one financial institution’s failure threatens the stability of the entire system — have subsided. And Greece appears to be closer to a deal with its creditors to pare back its debt obligations rather than a disorderly default that could plunge the financial system back into chaos. That encouraging situation seemed highly unlikely as recently as early December, when panic over the European debt crisis was reaching a peak, just before a European Union summit meeting in Brussels. While national leaders postured and pursued their parochial interests, Mr. Draghi, told reporters at the central bank’s headquarters that he would conduct “two longer-term refinancing operations” (in plain English, emergency financing) for cash-starved banks for three years instead of one year. The European economy was on the brink, and threatening to take the rest of the world with it, and Europe’s new top central banker did not seem to get it. “Why is it so impossible for the E.C.B. to act like the other central banks, like the Federal Reserve system or the Bank of England?” a reporter asked him. “Why do you not act more directly to help European countries by buying up the debt on a massive scale?” Mr. Draghi said he was bound by the European treaty, which “embodies the best tradition of the Deutsche Bundesbank,” the German central bank, code for strict inflation-fighting and the furthest thing from a wholesale emergency bailout. European stocks fell. Financial experts declared that Mr. Draghi had disappointed. The world demanded a bazooka, but he had shown up with a water pistol, or so it seemed. Less than two weeks later, on Dec. 21, the bank announced the results of its technical maneuver: the banks had taken $630 billion as part of the program. In the weeks that followed, the banks appear to have used a sizable share of the cash to buy the European bonds so desperately in need of customers. It was as if the European Central Bank had injected lenders with steroids, then asked them to do the heavy lifting. The strategy appears to be paying off. Even in the face of recession warnings and the agency’s downgrades, the European debt market keeps improving. Financial experts say the central bank’s intervention seems to have catalyzed a virtuous circle: As new governments come in and promise to deliver spending cuts, tax increases and balanced budgets, once gun-shy banks have an added incentive to tap new financing from the central bank and jump back into bond markets that they were running from just a few months ago. The question now is whether the E.C.B.’s action merely delayed the inevitable reckoning for the euro zone’s weakest members or whether falling interest rates and improved growth will become entrenched, bringing the critical phase of the Continent’s debt crisis to a close. “I think that they have mastered it to the extent that this isn’t going to get a whole lot worse,” said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. “We do have in my opinion fairly credible signs of stabilization.”

The second bailout, worth 130bn euros, was only agreed after the Greek government promised to slash bureaucracy, rake in more money through taxes and implement tough cutbacks throughout the economy.

Another condition was that Greece entered into talks with holders of its debt in the private sector to persuade them to take a 50% cut on their value of their bonds.

But those negotiations faltered on Friday, throwing the whole rescue plan into doubt

The banks and the government can't agree the terms of the so-called haircut, which involves a complicated swap of lower value bonds and cash.

It's hoped the two sides will resume talking on Wednesday as debt inspectors pore over Greece's accounts to ensure they have done enough to trigger the next bailout payment.

The crunch day is March 20, when Greece has to pay out 14.4bn euros to bondholders.

If no deal is in place and no cash available, the country will experience what is called a "hard default", the first country in the developed world to do so for 60 years.

In reality, terms of the bond swap and negotiations between the debt inspectors and the Greek government will have to be concluded many weeks before that date to avoid economic chaos.

The fear is that a hard default would trigger a credit event, which could pull the pin on the markets, similar to that after the fall of Lehman Brothers in 2008.

On Monday, Greek government spokesman Pantelis Kapsis said he was confident the negotiations would be successful.

But the Troika technical teams believe promises have not been fulfilled to slim down the public sector workforce and sell off assets.

The finger's been pointed at political infighting between the various political factions brought into his cabinet of the new technocrat Prime Minister Lucas Papademos which he has been unable to settle.

It's not the only faultline in the eurozone: the downgrade of nine countries' credit worthiness by the agency Standard and Poor's has also weakened the firewall designed to ensure the contagion doesn't spread.

The agency argued that by concentrating on austerity, European leaders were strangling what little fragile growth remains in the eurozone.

The chief negotiators for Greece's private creditors have left Athens without securing a deal to write off some of the country's debts.

The Institute of International Finance (IIF), which represents the creditors, said a technical team would remain to work on the details and negotiations would continue on the phone.

Greece had hoped an agreement would be in place by the end of the weekend.

It needs a deal if it is to receive the next tranche of bailout funds.

The 130bn euro ($168bn; £108bn) rescue package from the EU and IMF is crucial if Greece is to meet its next debt repayment deadline in two months.

The Institute of International Finance (IIF), which represents the private creditors, denied that its managing director Charles Dallara and his adviser Jean Lemierre had left unexpectedly on Saturday, saying that they had "longstanding personal appointments".

A deal now seems unlikely before eurozone finance ministers meet on Monday.

Default risk European leaders agreed in principle last year that private lenders would voluntarily write off 50% of their loans to Greece, but private creditors still need to agree to the terms of the deal.

Athens and the IIF last week discussed not only the size of the write-off, but also the rate of interest on the new loans, which will be renegotiated and rolled over into new bonds as part of any agreement.

Reports have suggested that a small number of hedge funds are blocking the deal, either to try to force a reduced write-off or to trigger a default, against which they are insured.

However, analysts say that even if an agreement is reached, there is no guarantee that all bond holders will sign up.

Without the EU-IMF bailout money, the Greek government could run out of cash and be forced to default on its debts.

Some analysts believe that if Greece did default, the country would be forced to leave the eurozone.

From what has been going on with sale of Greek Bonds..........who would want to buy them in Furture????? Had Merkel and Sarkozy agreed to let Greece default 2 years ago the situation would have been better than it is now, how can Greece repay the 10 yr Bonds with a yield of 133% ????

Italy's cabinet approved legislation Friday to deregulate a number of service sectors and professions in a bid to increase competition, cut consumer costs, and stimulate growth in what is the eurozone's third largest economy.

REUTERS - Italy’s cabinet on Friday approved legislation to deregulate some service sectors and professions in an effort to increase competition, cut costs to consumers and boost chronically weak growth in the euro zone’s third largest economy.“We have adopted a package of structural reforms to help growth,” Prime Minister Mario Monti said after an 8-hour cabinet meeting. “More competition means more chance for young people and less for rents and privilege.”

With Italy in the frontline of the euro zone debt crisis, Monti is keen to convince markets that a sluggish, hidebound economy can be reformed, even if some commentators question the growth-boosting potential of the raft of micro-measures.

He said the reforms, affecting sectors ranging from pharmacies to banks, notaries and taxi drivers, were sure to meet with opposition because “many people prefer the status quo rather than facing new challenges”.

Taxi drivers and lawyers have announced strikes against the measures, which are effective immediately but must be approved by parliament within 60 days or they will expire.

The package includes an abolition of minimum fees for all professional services, the issuance of 5,000 new pharmacy licences and the creation of an authority responsible for managing energy and infrastructure networks.

In future it will be possible to do part of the apprenticeships needed to join professional guilds at university.

However, ministers did not offer a full breakdown of the measures at a news conference.

Industry Minister Corrado Passera said the government had decided to suspend the so-called “beauty contest” to award new digital television frequencies, a method intended to award frequencies without charging operators for acquiring licences.

Monti’s efforts to open up the “closed shop” mentality that has grown up around the professions in Italy is being fiercely opposed by the insiders who benefit.

Monti cited a study by the Bank of Italy estimating that increasing service competition could boost growth by 11 percent in the long run, with half of that coming during the first three years after reform.

The government, which has been working on the deregulation measures for weeks, watered down some of its initial proposals, including easing firing rules, abolishing limits on discount sales by retailers and increasing the number of taxi licenses.

Taxi drivers, traditionally a particularly militant group, have held weeks of wildcat strikes, including surrounding the prime minister’s residence in Rome with their cars.

They announced further action to protest against the government’s decision to assign the issuance of new licences to a transport authority rather than to mayors, on whom the taxi drivers feel they have more influence.

Monti said Italy’s economy, which has lagged the euro zone average for every year since comparative records began to be compiled by Eurostat in 1996, was hampered by insufficient competition, poor infrastructures and excessive bureaucracy.

He said the first two problems were addressed by the package of measures adopted on Friday, while next week the governemnt would present another package aimed at cutting red tape.

Already under pressure from vested interests affected by his reforms, Monti was also attacked on Monday by Berlusconi, whom he depends on for his parliamentary majority.

Berlusconi told reporters that measures adopted so far by the new government had “produced no results” and that he was ready to return to power soon.

At a polling station in Donja Lomnica during Croatia's referendum on accession to the European Union, January 22, 2012.

AFP

On 22 January, Croats voted in favour of ratifying the Treaty of Accession to the EU, prompting a sigh of relief in Brussels. The record voter abstention rate, however, must give cause for concern, notes the Croatian press.

Croatia has become the 28th member of the European Union. The democratic dream of an optimistic people in the late 1980s and early 1990s has been transformed into doubt over the last two decades, confronted by a reality that’s anything but idyllic because of the problems faced by both Croatia and by the EU, whose workings are far from ideal. But as of yesterday that dream has become the reality we will have to live with.

Of course, we must be realistic. Following the referendum, and especially after July 1, 2013 [when membership comes into force], Croatia will not become a land of plenty. The EU is not a remedy against everything that troubles us. It is far from being a personification of Good, an idyllic community of states and nations. It has its problems and its often painful methods for solving them. In such a “community of interests”, Croatia must find its proper place. There are many conflicts, and the Union provides fertile soil for eurosceptics.

But for now, there is no doubt that the accession to the EU is a big step for Croatia. The country has lost nothing, and especially not her sovereignty. It can only benefit.

Senol Selimovic, a columnist for Sloboda Dalmacija, a daily from Split, reflects on the “historical record for low voter turnout in an EU membership referendum” that Croats set on January 22:

At 43.6 percent, turnout is the lowest ever recorded for this kind of consultation at a European level. It is even lower than the percentage of Hungarians (45.62 percent) who voted in the 2003 referendum on the future of their country inside Europe.

“If the Croatian government had not in the meantime changed the constitutional law on the referendum, the referendum would have failed for lack of voter turnout. But the Croatian political elite avoided this “trap” in time, and they can now clink glasses over the fruits of their long effort to persuade the people on the future of the country…

The low turnout, however, does leave a bitter taste, indicating as it does that the arguments put forward by the political leaders in favour of the EU have been unconvincing and that they have failed to inspire citizens to take part in a vote of such historical importance… The Croatian government even betrayed that part of the pro-European but democratically-minded public that denounced the lack of equal treatment for organisations and groups that opposed joining the EU, in terms of financing and media slots to present their arguments. Instead of an information campaign, it has been a propaganda campaign. In place of a historic referendum like that of 1991 (on Croatian independence), in which 83.5 percent of the population took part, the January 22 referendum will go down in European history for its abstention rate.

Augustin Palokaj of Jutarnji List focuses on the sigh of relief that Brussels must have uttered after Croatia’s “yes” vote:

By voting yes, Croatian citizens have shown that joining was not just the project of the political elites, but a project that had their backing too. Nevertheless, the low voter turnout in such a significant popular vote has not gone unnoticed. Indeed, the number of participants, as well as the number of “yes” voters, sends a clear message: Croatians want to be in the EU, but they do not expect great things from it. The EU is not a perfect institution. We can blame a lot of things on the way it operates, but like it or not, it is better to be a member of this Union and fight for our interests inside it. In short, the Croats have no illusions about the EU. There is no room for euphoria, and that’s a good thing. [...] Considering the difficult situation the EU is in now, the Croatian “yes” is also a great comfort to the EU, as a “no” would have meant a glaring failure for the Union.

"Brussels begins asphyxiation of Iran", writes El Mundo, on the EU’s decision on January 23 to clamp an oil embargo on Iran. According to the Madrid daily, this “will come into force in July to allow Spain, Italy and Greece to seek alternative suppliers”:

Between Greek pressure to delay sanctions as much as possible and the position of the UK, France and Germany, that wanted an embargo to come into force no later than May, the strategy that was finally adopted looks like a half way agreement.

As Iran is Greece’s main oil supplier, El Mundo considers that the EU is seeking a "reasonable" moratorium to avoid this decision becoming "a double-edged weapon that could complicate the bad state of [the European] economy". El Mundo terms it an "unprecedented sanction" that will put a stop to the 450,000 barrels a day Iran exports to the EU (18% of its global exports):

The problem is that EU economic pressure may not be enough as long as Turkey and the main Asian commercial powers – China, Japan and South Korea – refuse to apply any kind of embargo or sanction. The same goes for Russia, where President Dimitri Medvedev has clearly stated to Union leaders that his country has no diplomatic problem with Iran.

Eurozone finance ministers meeting in Brussels have called on Greece to reach a deal with its private sector creditors "in the next few days".

They confirmed that 130bn euros (£108bn) is available for the country.

However they called for Greece to accelerate structural reforms to strengthen its economy and growth before funds would be released.

The group, headed by Luxembourg's Prime Minister Jean-Claude Juncker, said Greece's future is within the euro.

"We welcome the increased convergence and ask the Greek government to reach in the next few days a common understanding on the main terms and conditions of the PSI [private sector involvement] offer," said Mr Juncker early on Tuesday.

The group announced that they expect Greece's private sector creditors to accept a nominal 50% cut to the value of the loans they have made to Greece.

They also called on the Greek government and the troika - the European Commission, European Central Bank and the IMF - to agree the key parameters of an "ambitious" adjustment programme as soon as possible.

EFSF downgrade In the same announcement Klaus Regling, chief executive of the European Financial Stability Facility said the fund's recent downgrade by rating agency S&P would not affect it.

The body was set up to provide financial assistance to stricken eurozone countries.

Mr Regling said the downgrade applied only to the fund's long-term credit rating and did not affect its short-term ability to act.

He said that out of three major agencies only one had downgraded the fund and that the other two, Moodys and Fitch, had indicated that no downgrade was imminent from them.

Mr Regling pointed out that the fund had successfully auctioned debt on the day after the downgrade and described market reaction to the downgrade as "limited".

The fund's 440bn euro capacity was not reduced by the downgrade and the EFSF has sufficient means to support eurozone countries until the introduction of the European Stability Mechanism in July, he said.

Greek deadline The Institute of International Finance (IIF), which represents Greece's private sector creditors, said a technical team would continue to work further on the details of a deal to cut the value of its debts.

European leaders agreed in principle last year that private lenders would voluntarily write off 50% of their loans to Greece, but private creditors still need to agree to the terms of the deal.

The 130bn euro ($168bn; £108bn) rescue package from the EU and IMF is crucial if Greece is to meet its next debt repayment deadline in two months.

Without the second bailout Greece will not be able to pay back 14.5bn euros in maturing bonds in March.

If Greece defaults on its debts it could cause further economic havoc in the eurozone, and undermine the common currency.

"Without it, countries like Italy and Spain that are fundamentally able to repay their debts could be forced into a solvency crisis by abnormal financing costs," she said.

She suggested "folding" money left in the eurozone's bailout fund, the European Financial Stability Facility, into the new European Stability Mechanism bailout fund, when the latter comes into force some time this year.

She also said the European Central Bank should "provide the necessary liquidity support to stabilise bank funding and sovereign debt markets."

And she repeated her view that "across-the-board, across-the continent, budgetary cuts will only add to recessionary pressures".

'Market wolf' A leading Australian economic report warned on Monday of the wider global implications of a eurozone meltdown.

The quarterly Deloitte-Access Economics Business Outlook said it was "marginally" more likely the eurozone would manage to get through its current problems.

For the time being, the report said, the European Central Bank looked able to keep the "market wolf from the sovereign debt door" but that the region was bound for recession.

The euro hit its highest level in nearly three weeks against the dollar on Monday, at $1.2998 on hopes of positive signs from the finance ministers' meeting.

Kapoor of Redline says growth is priority and EU Leaders should forget the fiscal policy for now and Germany should stop pushing austerity down everyone's throat. Denmark, which has no debt problem would be the best placed to advocate growth.

Germany will not lend money to any of these crisis Countries says another analyst and is enjoying a low yield rate on Bonds they sell and a low Euro so is quite happy to string everyone along.

Dutch Finance Minister says says Greek new Bonds must have a yield well below 3.5% which would mean a 120%of GDP in 20 years.

france's downgrade means it will have to work harder to reduce deficit. A General Election will take place next month.

La Garde wants a bigger firewall and the existing Funds combined but says it will not happen unless Europe adopts a tougher fiscal policy Some G20Countries are wondering at the role she is playing when the ECB is quite capable of bailing these Countries out. they say the IMF Fund is limitedand was designed to give a helping hand to poorer Countries.

The current Greek 10 year Bond has a yield of 33%.

There is still an impasse on the new Coupon , Greece is not helping because it is not doing enough with its austerity plan. Germany is adamant it will not release the next tranche until this matter is resolved so the Greek default is looking more likely.

Much of the talk will focus on the so-called "fiscal compact" which is designed to ensure euro countries keep their accumulated debt and budget deficits within certain limits.

The UK refused to be part of the agreement after the Prime Minister failed to secure safeguards for the UK's financial services industry.

A senior diplomat said Britain would remain an observer in the talks, but would intervene if it felt the decisions affecting the single market or European institutions such as the Court of Justice were being made.

Britain is also sceptical over plans by some EU members to introduce a financial transactions tax. France will outline its plans to either introduce such a measure either alone or in concert with other countries in the EU. Ireland and Sweden also have reservations about the proposal.

The diplomat suggested it is surprising France would outline a domestic fiscal issue at a Council meeting, but the Danish presidency has not scheduled a meeting to discuss the implications.

In Athens, the war of nerves over the debt haircut is nearing a finale. The negotiations between private creditors and the government, however, are taking some dangerous stumbles. Before Greece gets €130 billion in aid, it must show some success with its reforms. And that, with all the good will in the world, cannot be achieved.

Every day we see the same images. Men and women in suits and with serious expressions step briskly up to a revolving door, wind their way into an unfamiliar building and disappear into the darkness. The scenes are playing out in Athens, and they show the negotiators from the Institute of International Finance and the Greek government, who are meeting every day to play poker over the terms of the haircut for Greece. As agreed at the EU summit in October 2011, and under pressure from European governments, private banks and hedge funds are voluntarily to waive €100 billion.

That agreement sounded convincing, but the deal is far from being a sure thing. That’s why the bearers of aid are themselves sitting in a trap: the Europeans and the International Monetary Fund have made the write-off a condition for putting together a second rescue package for Greece of €130 billion, which should help the country get back on its feet by 2020. If no agreement is reached, however, there will be no bailout. Just bankruptcy.

To push private financial institutions into sharing the costs of the crisis has proven a huge mistake. This has since dawned on the helpers, particularly the federal government of Germany, which has been so deeply committed to the debt haircut. What is certainly true is that things have been tackled so amateurishly that even Berlin has been forced to diagnose "substantial collateral damage".

In Brussels, a EU diplomat explains what that means: “Insisting on a debt haircut has worked against us, because investors looking ahead will refuse to buy any European government securities, especially long-term securities, other than German ones." The man knows his way around in Greece. He now sees, he says, "for the first time, a real danger that we will unknowingly lose control over what is happening in Greece".

Highly explosive

The disaster with the private creditors is not the only trap Greece’s helpers are falling into. They calculated all the help from the beginning in too compartmentalised a fashion; they had to constantly adjust their programmes, which then upset or angered everyone. They angered Greek citizens, who have to pay higher taxes on less income. They angered the investors, who are sitting tight in the face of the dismal consumer climate, and furthermore will not invest one cent in the former holiday paradise, which is why no one wants to buy the state-owned enterprises that are up for sale. And finally they have angered and upset the citizens of Europe, who are getting the impression that they are handing out billions of euros to Greece, and yet everything is getting worse.

The high-ranking EU diplomat calls the mixture of all these moods "highly explosive". Stories making the rounds tell of Greek Ministry of Finance employees whose 2011 salaries were cut by 40 percent, with retroactive effect. The employees went home in the fourth quarter of 2011 not only with forty percent less salary, but, on top of that, the corresponding reductions from the first three quarters of the year taken off. The employees put their payslips on the table and ask, almost desperately, what they are to live on.

And then there's the matter of taxes. The French have now begun, with their Greek colleagues, to set up a nationally networked system for collecting taxes. If they are fast, they will have it up and running in two years. First, everything has to be advertised throughout Europe. There are deadlines, then a selection process, a bidding process, more deadlines, the award of the contract: everything must be ordered, purchased and installed, and the employees need training.

The creditors are playing poker

Even with all the good will in the world, the Greeks will not be able to collect the taxes already agreed to. The problem, says the EU diplomat, is that the objectives in the austerity and reform programmes were unrealistic. And now everyone is wondering why the Greeks cannot pull it off.

The Greek trap is yawning open once more. If the helpers are to stick to their self-made rules, they will not allow themselves to give the Greeks any more money. But do they really want this, when for the first time in years matters are actually moving forward slightly?

After all, the biggest mistake has now been fixed: high interest rates. In May 2010, the German federal government still wanted to earn money off the emergency aid for Greece. The Greeks had to pay the going market rate for the loans, and then a little something more. It sounded as if the Chancellor wanted at the same time to dole out a little punishment to the Greeks for all the trouble and for their mountain of debt, and to reassure the people at home. A year later, Berlin was forced to accept that the interest rates, which were bringing in money for the federal government, were contributing to driving Athens further down the road to ruin.

Because of the interest rates, negotiations with the private creditors are also faltering. The creditors are playing poker over tenths of percentage points, which add up to billions of euros. Last Friday, bankers and politicians said a deal was just “millimetres" away. But then the chief negotiator for the banks, Charles Dallara, left Athens, without having walked that last millimetre. He still wants something else: a political commitment that the Greek haircut will be the last haircut for private creditors. The earliest any decision on that is likely to come is after the EU summit next Monday.

Translated from the German by Anton Baer

Eurogroup increases pressure

“Eurozone finance ministers on Monday night rebuffed a deal presented by private owners of Greek debt as a “maximum” offer for the losses they are willing to sustain, opening a fresh round of brinkmanship in tortuous negotiations to ease the country’s debt load,”writes the Financial Times. European aid to Greece is conditioned on finding an agreement with the banks.

The ministers are asking that the interest rate on 30 year bonds that the banks would obtain in exchange for forgiving part of the Greek debt, be set by the banks at below 3.5% on average. The banks are asking for 4%. The higher rate would allow the banks to lose no more than 65-70% of their claims but would be too great a burden on the Greek debt in the long term.

Demonstration fatigue appears to have kicked in since Greece's change of government

1:44pm UK, Wednesday January 18, 2012

Robert Nisbet, Europe correspondent

In Greek mythology Sisyphus was the king condemned by the gods to roll a boulder up a hill for all eternity.

It is used now to describe a never-ending task: the kind we witnessed in Athen's Syntagma Square this week.

Men in overalls with buckets of soapy water trying to scrub anti-government graffiti from the marble walls of the buildings which stand near the Parliament.

But for the Plaza Hotel, Tuesday was one of the better strike days in the centre of Athens: its marble steps have been destroyed to make improvised missiles several times over the past two years.

They were left untouched despite a demonstration during the general strike, which was something of a damp squib.

In some respects there is demonstration fatigue; the protests involving public and private sector unions, communists, students and pressure groups have not stopped the slow free-fall of the country's economy.

Last year's protests against austerity measures often degenerated into violence

Nor have they changed the general policy of the Greek government, despite the change of administration after the fall of Prime Minister George Papandreou at the end of last year.

The country is in hock to its international lenders, who are calling the shots, especially now Greece needs the second bailout of 130 billion euros to pay its creditors.

The prospect of a 'hard default' does not cheer anyone, in fact 70% favour Greece remaining in the eurozone, knowing that a return to the drachma would be traumatic.

But there seems to be less anger than we witnessed last year. It seems to have been replaced by a feeling of inevitability, mixed with concern about what a default could mean.

A return to the drachma would make imports cheaper abroad, so spur growth in certain industries, but would also make imports much more pricey.

Then imagine trying to pay off a loan you took out in euro with drachma, which may be worth perhaps a tenth as much.

The biggest worry globally is that a default would trigger a so-called credit event, which would set in train a series of shocks similar to that witnessed after the fall of Lehman Bros in 2008.

The event is being keenly felt across all ages and social classes.

One woman I spoke to described how her eight-year-old daughter had started to pick up the lexicon of the crisis: asking what the words "default" and "unemployment" meant.

She took her away for the Christmas holidays.

The last time I was here I spoke to a man called George whose income has been so squeezed he now relied on his mother-in-law's smallholding to dig and pick fruit and vegetables for his family.

He used to be a lawyer but now drives a taxi for extra income.

George told me his parents used to describe the fear in Greece during the German-Italian occupation and subsequent civil war.

He says the country rebuilt itself and vowed never to let its people be hungry or frightened again. But they are, he told me.

Gerard Lyons , Cheif Economist at Standard Chartered says he believes the Euro will not survive, it is O.K. for the good times but has proved weak for the bad times.

He says Greece will default because because the Country will not withstand the pain of austerity it faces for several years.

Mr Monti is doing a good job in Italy but Italy, Spain, France, Portugal and Ireland face hard times unemployment being the major factor .He likened Unemployment to being a bad shock absorber and the ECB a good shock absorber .

Emerging markets may slow down but they have better reserves and are trading with each other whereas the West has no options.

The crisis, or several crises all at once, are closing in on Guimarães, a beautiful Portuguese city of 50,000 inhabitants and the administrative centre of the Ave Valley region. In the 1980s and 1990s, the enormous textile mills that lined this entire valley were abandoned to the growing competition from China. Since then they have been gathering dust, mementos of a past era.

The same ancient heart of Guimarães, beautifully preserved in the shadow of the old castle, is surrounded by empty factories with silent chimneys of brick. But the city’s inhabitants have decided to bring life back to the factories, a life full of paintings and concerts and plays, in order – incidentally – to try to survive too. The European Capital of Culture, which opened on Saturday in this town some 150 kilometres from Vigo, envisages the recovery of many of these factories as cultural stages, film sets or as artist residencies. Reinvent oneself or die.

The Ramada factory, an old tannery that shut down many years ago, will host a design institute in September – but before that happens, it will be the rehearsal hall for the organisation’s orchestra. The ASA factory just outside Guimarães, in the town of Vizela e Santo Tirso, specialised in its time in blankets and towels, shut its doors for good in 2006. Through a private investor it will now become a sort of inexpensive shopping centre – once its 24,000 square metres have hosted major exhibitions.

And in the ghostly textile factory of the Earl of Vizela, which employed more than 4,000 workers and even had its own currency back in the nineteenth century, Víctor Erice and other filmmakers like Jean-Luc Godard and Aki Kaurismäki (a Finnish filmmaker who lives near Guimarães) will shoot a film together. The city is not ready to watch the film industry come through here using Guimarães 2012 as an excuse and then go elsewhere, and so it has put together a film production team to remake the city into a destination for filmmakers. “We now have deals for productions planned for 2013 that were going to go to eastern Europe. Erice says he would like to come here himself to film,” says the head of the audiovisual sector of Guimarães 2012, Rodrigo Areias.

The country of Portugal was born here

Rodrigo Areias explains this in another old mill in Guimarães, now converted – thanks to the efforts of a group of young architects in the city – into the Centre for Art and Architectural Affairs. Each room has been given a “mission”, from residences for invited foreign artists to an audiovisual laboratory specialising in animated robots and wriggling toys that would delight any one mad about applied informatics – or just plain crazy.

“People come up here from the city at night," Areias explains with a smile. This just may be the secret. The city, the people of this city, which was chosen as a “Cultural Heritage of Humanity” in 2001, see the “Cultural Capital” designation more as an opportunity than as a party. For many it is a lucky break that probably won’t come again. The ones organising it understand that clearly. "We don’t want the Berlin Philharmonic to come, which is very expensive besides. It comes along, plays, does it very well and then goes away and it’s goodbye," says a spokesperson for Guimarães 2012. "We want something that lasts, that helps bring life back to the city, and with the people that are here," he adds. Hence one of the slogans: “I’m part of it." Badges sporting the phrase are pinned to the lapels and jackets of almost all the residents of Guimarães.

The budget is lean (25 million euros), the result of a year in which Portugal is testing its luck as a solvent state, threatened by bankruptcy and watched closely by the troika. Imagination was needed. One example: the innovative band Buraka Som Systema, one of the faces of modern Portugal, will come to give a concert on January 28 at the Pabellón Multiusos (the Multipurpose Hall). A programme called Mi casa es tu casa (“My house is your house”) is also planned for that day, and will see city residents loan their flat or a room or hallway to other groups for recitals. Forty houses have already agreed to swing open their doors.

The proud residents of Guimaraes are, well, answering the call. It’s no surprise, historians say, that the country of Portugal was born here – as was its first king, Alfonso Enríquez, who lived in the famous castle that, over time, has been looking more and more like an abandoned factory. No coincidence either that the official programme will start Sunday off with a documentary on Portuguese music entitled, significantly, Let’s all play together, the better to hear each other.

Translated from the Spanish by Anton Baer

Austerity

European Capitals of Culture on a low budget

“Never has a European capital of culture been organised with such a shrunken budget,” writes Expresso. The €25 million set aside for Guimarães 2012 isn’t much next to the €226 million Porto got in 2001. The responsibility rests with “the economic situation Europe is going through as well as the changes introduced into the concept of European ‘Capital of Culture’ in recent years”, the Lisbon weekly explains.

Adopted in 2007, the current model nominates two medium-sized cities each year, Guimarães sharing the title in 2011 with Maribor in Slovenia. If in the past cities took the opportunity to build cultural facilities, today it is the connection to the cultural fabric of the region that’s sought after most. Observing the trend, Portuguese philosopher Eduardo Lourenço wonders “if the celebrations have any consequences beyond the internal effect” and if the initiative still makes any sense, now that there isn’t much left of the European hopes it has raised.

Capricious, unreliable and ideologically driven were some of the more printable epithets hurled at George Papandreou in his final week as Greek prime minister. We should look at the motives of his detractors before taking such critiques at face value. While engaged in titanic political struggles at home and abroad, he has been quietly trying to tackle one of the most intractable root causes of the Greek tragedy – crime and corruption.

As the new Greek government struggles to convince Europe of its resolve to cut the country’s bloated public sector, it also has to decide whether to face down the real domestic threat to Greece’s stability: the network of oligarch families who control large parts of the Greek business, the financial sector, the media and, indeed, politicians.

Since Mr Papandreou became prime minister, his government has been trying to crack down on habitual tax evaders. He made clear in a speech to parliament on Friday how deep his concerns are regarding the more dubious activities of some of Greece’s banks. We can only hope that the BlackRock audit, ordered by the troika, will be suitably forensic in uncovering what has really been going on in the financial system. Read full article in the Financial Times – registered users – or in Presseurop's nine other languages...

Interviews are taking place in Davos and these are some of the comments.

Harvard University Professor:-

Germany is benefitting from the low Euro and has a massive current account surplus which is being used to buy assets abroad.Merkel is treating the crisis in the wrong way and is playing financial roulette.Her thinking is that every Member Country behave like Germans which of course they can"t.

HSBC spokeman Stephen King :-

The EU is fundamentally flawed and the Regulations impossible to monitor.

WPP Soros:-Merkel insisting on austerity could build up resentment among Euro Countries and effect the Euro

Greek Bond Creditors have made a maximum highest offer which is receiving consideration by Greece.

A severe recession is spreading around Europe.

Portugal has delivered all thhe austerity measures yet still has to accept high yields on Bonds.

Ireland's Prime Minister says the crisis MUST be resolved soon and is very concerned.

Merkel has asked for more time and patience and says the problems will be resolved. Her Economics Minister has a good grasp of what is necessarybut Investors are impatient that after 2 years nothing has been resolved.